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Is Delaware the cheapest place to incorporate?
136 points by ddxv 10 months ago | hide | past | favorite | 121 comments
I am living in Taiwan and want to create a startup. The business will be mostly open source and likely to have low to no revenue.

I see that US states like Colorado have no franchise tax. But I also saw posts here that Delaware is usually ultimately cheaper.

What is the recommendation for a company to manage an open source project? Sure it might be worth money, but likely not, so I would like to keep money tight.

thanks!




I'm an attorney.

Delaware is definitely not the cheapest or even in contention for the cheapest.

Still, if you want to raise capital, the correct answer is DE C Corp. If you're not looking for external funding, any state will do. If you care about anonymity, do Nevada or Wyoming. If you don't care about anonymity, Colorado is actually a very good choice. Very simple, intuitive online filing system that accepts filings instantaneously. Filing fees as cheap as anywhere in the country. No need for an attorney (or LegalZoom or some other random service) unless you just don't feel like dealing with it.

Costs will likely be $50 to file, Registered Agent (as cheap as $30 per annum), and $10 periodic report fee annually every year you're in business. Colorado is even nice enough to send plenty of reminders on when to file that report if you give them an email address.

Since you're a US citizen, my instinct would be LLC taxed as an S corp. But confirm with your accountant!

Good luck!


Piggybacking on this.

If I'm a non-resident alien looking to incorporate the cheapest US-based company so that I can open a business bank account for credit card churning, would a Colorado LLC still be the the best choice for me?


You’ll need an SSN to open most credit cards, it’s very difficult to get a credit card without residency. The business banks that specifically cater to overseas founders (like Mercury) make banking easy but that doesn’t extend to churning credit cards.

Edit: put simply, it’s very unlikely that opening an LLC will help you in obtaining credit cards as a non-resident.


I assume ”non-resident” in this context means not a permanent resident, but still a SSN-holding resident otherwise. For example a TN or H1-B visa.

These visas don’t authorize you to work for a company other than the one officially sponsoring the visa, but you are allowed to own your own business. Perhaps that is the motivation for wanting to open an LLC, but I’m not sure what an LLC gets you in this situation that simply declaring yourself a sole proprietor doesn’t.


You're wrong. Non-resident alien means the person is at-best a tourist. Most likely the person is outside of the US and _maybe_ visits occasionally.


No, you are totally wrong. You should not comment on things that you have no understanding of. A non-resident alien is any person in the US who is not a citizen, green card holder, or passes the substantial presence test. There are millions of non-resident aliens on visas in the US.


Substantial presence test is applied by IRS only for tax residency. You can be on h1-b for 5 years, pass the SPT and classify as tax resident but still be non-resident alien in the eyes of DHS/USCIS/SSA.


In the United States, non-resident alien is someone who does not have a LPR or US citizenship. Students on F1 Visas and J1 visas for example, are categorized as Nonresident aliens.

H1B is a dual purpose visa on the other hand. LPRs and Citizens are obviously categorized as residents.


Completely wrong.


note: nevada lets you form entities with little information but demand the information 6 months later, which will be public

the only shady thing about this part of nevada are all the promoters advertising anonymity


Why is the correct answer a DE C Corp if you're looking to raise?


It's just industry standard for capital raises. All corporate attorneys learn DE law when they go to law school and are expected to know it if they practice corporate law. A Colorado attorney doesn't know California law and a California attorney doesn't know New York law, but if they do corporate legal work, they're all expected to know how to deal with DE law.

Nobody knows Nevada or Wyoming law. I don't even think Wyoming attorneys know Wyoming law.

DE's court of chancery is also very sophisticated with respect to corporate legal issues. That makes it the venue of choice for investors, which means it has become the venue of choice for those seeking investment.

But in terms of states and their processes for filings, DE is a total pain in the butt. You have to pay an expedited filing fee just so that they can process your filing in less than a week. Their system is counterintuitive and clunky. You better like elevator music if you ever want to talk to a human. Sometimes they reject filings and just don't bother to tell you. It's all opaque and antiquated.


I would also add from a founders standpoint - the infrastructure Delaware has supporting their business incorporations division has been miles above any other state I have worked with. They pick up the phone when you call! The files and forms are (relatively) easy to find. Supporting firms like registration agents are plentiful and straightforward for Delaware.


Every time I read "court of chancery", for a second I think it says "court of chicanery".


I'm a longtime Delawarean and in my past life as a journalist I wrote about why the state is such a corporate haven.

The short answer is that companies incorporate in Delaware to mitigate risk.

The slightly longer answer is that the Delaware courts that deal with corporate legal matters are much more predictable than comparable states. There is voluminous settled case law, and so when you incorporate in Delaware, it is a safe option, a known quantity, relative to other states.

That's why VCs and other investors want the company to be incorporated in Delaware. It's not just because everybody else is doing it; it's to mitigate legal risk.

When we look at consumer products, we sometimes consider the total cost of ownership. Maybe a pair of sneakers is not the cheapest, but it lasts longer than a budget pair, so it has a lower cost of ownership over the lifetime of the product. Delaware might not be the cheapest state to incorporate in, but it has the legal equivalent of a low cost of ownership over the life of the business.


I mean it is because everyone else is doing it. Because everyone else incorporated in Delaware, that's where the case law is well established, all existing contracts are written in terms of DE corporate case law, etc. etc.

We all could have picked Road Island or New York instead. But for historical reasons it was Delaware.


Yes, that's correct. Companies originally flocked to Delaware because it was relatively easy to incorporate there, and then the volume of registrations begat the volume of case law, which begat more registrations because of the favorable legal environment.

My point was that it's not just because it's trendy or a matter of conformity. It is a risk-management strategy.


How is that any different than anything else?

Everyone hates Facebook but everyone uses it. Why? That's where the people are. Same for Instagram, Reddit, etc.

Everyone hates JavaScript. Buggy and counter intuitive. Mess in all the different browsers - historically. But everyone uses it because everyone uses it so it gets the community.

Maybe Delaware is the best... or a victim of circumstance. Or being good enough and one of the early states to get that foot hold.


Could you share the article you wrote about why Delaware is a corporate haven?


Not an attorney, but as someone with a startup incorporated in DE—it's just the default. Delaware has very good and well-understood corporate law and a judicial system that is able to handle complex corporate cases.

If you're fundraising as a Delaware C Corp you will face no questions about that, but if you've done something else you will need to explain why to your potential investors (and they will probably push you to reincorporate).


Delaware Court of Chancery also holds the doctrine of shareholder supremacy, where execs actually have an obligation to maximize shareholder interests. Other states don't recognize it or allow balancing other stakeholder priorities.


There are limitations on the number of owners and the amounts and type of stock you can issue as other types of corporations. Delaware doesn't require you to disclose all owners and investors and they have a court of chancery that is business friendly.


many VC's require it, cuz it keeps their admin standardized.


The Court of Chancery nearly always rules with the board (VCs) over shareholders (founders). VCs like that.


Some states are better than others. For example, California has an annual LLC tax of $800. There's no reason to pick California for a use case like this.


But if you are doing business in California, you are still liable for the annual $800 tax, even if your LLC is formed in another state.


I was told that Delaware also has the best abonymity? Has Delaware been dethroned by Nevada and Wyoming in this aspect?


Would Nevada/Wyoming be a good deal if they lived in the US? Let's say, living in Texas.


If your corporation will be deemed to operate in the state you live in, which it might, then it'll need to register there as well as its home state. The least hassle path is often to make the corporate home the same as your home, then you don't have to register in two different states, and you don't need to pay a registered agent, because you can do that, etc.

It's certainly a different question if you're likely to get funding, but it's not hard for a skilled attorney to re-incorporate your business as a Delaware corp if that's a condition of financing, just takes a bit of time to do the work, and maybe not much more time than incorporating in Delaware to begin with, and delaying hassle that you might be able to avoid is better than paying it upfront.


I agree with the first paragraph and strongly disagree with the second. If you are a US citizen and live in the US, for any pass-through entity, you will likely be taxed and need to register as a foreign entity in your home state. Probably easiest to just incorporate where you reside, unless you're looking to raise capital, in which case you should just go straight to DE.

Conversion costs and/or re-incorporation complexity varies considerably by state. Some states allow for simple statutory conversion; other states expressly prohibit it. It is not accurate to to say that reincorporating is just a bit of work. Sometimes it is, and sometimes it's a lot of work. If you're serious about raising capital, start as a DE C Corp from the gun. Especially if you have multiple founders.


Your commentary on the wide variety of challenges that can arise from reincorporating/re-domiciling matches my experience.

In some cases, depending on the originating state and business structure, there may not even be a way to accomplish that without selling your old business to your new business. Even if that’s “just on paper”, it becomes an entirely different (and sometimes much more costly) beast.


Texas has a larger up-front cost (about $300 one-time), but no annual fees at all, no income tax for corporations or individuals.

Unlike Wyoming and Nevada, Texas does have franchise tax, but that is 0 until you exceed $1.23M in revenue, and it maxes out at .331% or .75% after that (https://comptroller.texas.gov/taxes/franchise/).

Delaware has all of these (personal, which wouldn't apply if you live elsewhere, corporate income tax, corporate franchise tax, minimum $400 annually). Wyoming costs only $50 to incorporate but has a $50 annual filing fee.

Also, you'll probably need to file foreign corporate status if you have employees in Texas but are incorporated elsewhere, which is about $700 (one-time).


If it’s a small company, you may notice the cost of registering the foreign corporation in your actual location.

Some people and tax authorities may draw an inference from states like Nevada with a reputation for shady companies in some industries.


What happens if you move your home to a different state after incorporation? Do you potentially have to register the business in the new state as well as the old one it's already registered in?


You don't in theory, have to live in the state you incorporate in, depending on type of 'corporation' and/or depending on agency availability.


When did the OP say that he's a US citizen? Not sure I saw that.


How difficult is it to change, in practice? If I've got an LLC or a corp in a different state, can I form a DE C corp and arrange to have that buy my whatever?


It’s not a big deal. Startups do this all the time when they get bigger and want funding.


Are you my attorney?


Nope.


You may want to start a Delaware C-Corp if others are investing money. That is the standard. But it is far from the cheapest way to "start a company" in the United States.

Usually, it is easiest to start a "limited liability company." Smaller states compete for the lowest LLC cost. For example, Arizona, Mississippi and Missouri all charge $50 for an LLC, with no recurring fees. Kentucky charges $40, but requires a $15/yr report. But you may need a registered agent or other ongoing costs in those states.

By comparison, Clerky (a popular C-Corp startup service) charges $99 + $328 in state fees. If you get people interested, you can easily convert from an LLC to a Delaware C-Corp.

But if you are in Taiwan, why do you want a US company?


Thanks for the advise.

As for your question, I'm an American citizen and generally get advise to not directly create a Taiwan company as the tax and banking system are incredibly bureaucratic. Having painfully started a subsidiary here in the past, though not an actual TW corp, makes me suspect the advise I hear is worth listening to.


If you’re operating a foreign company from Taiwan then it’ll probably be deemed a Taiwanese company anyway for tax purposes. Check local laws.


If you need a company in Taiwan, it's generally best to have your main company outside and have a branch in Taiwan. It has significant tax benefits, particularly for foreigners.

A branch can repatriate profits to the parent company, after paying Taiwan tax. If you have a standalone Taiwan company, then you have to pay dividends, then pay personal tax on it. If you are not resident in Taiwan, then you would pay 20% tax on those dividends. There is also a 5% tax on retained earnings.

Another benefit is that if your company pays someone overseas for services, then Taiwan considers that "Taiwan source income", and they owe 20% tax on it. Other countries like Hong Kong would not tax that money.

As foreigner, if you leave, then you would find it difficult to run your company remotely. So you might as well set up somewhere else.


Sounds reasonable.

People hold IP in LLCs all the time. Obviously, though, the outcome depends on TW law and its loopholes as much as the IRS and state law. And the cheapest US LLC services just won't have any clue about any of that.


A follow up question I have is why create a company if you think you’re gonna have no to little revenue? Why not just wait until you actually make money to register? Adding a business entity before having any cash flow will probably only make your life more complicated.


Listen to this guy.

"The business will be mostly open source and likely to have low to no revenue."

No revenue would be interesting for a UK company. Just fill a dormant status.

Delaware is not a bad option.

"What is the recommendation for a company to manage an open source project?"

Start without a company? Investments (Domain, Server) could also be tax deductible from your current income.

https://incorp.com/ is generally a good incorporation service. But in the past their administration interface required windows. Don't know how it is now.

My gut feeling: Start without a company. (I am not a lawyer).

Edit: Open in Rwanda. Free and nobody is going so sue you there for sure! :-)

https://www.visualcapitalist.com/wp-content/uploads/2021/07/...


> No revenue would be interesting for a UK company.

Considering atrocious taxes and a broken hmrc i would not advice anyone to register a uk company.


You must be obviously a British citizen.

Please be advises, compared to the rest of the core EU your taxes are pretty decent (lets not talk about HU, BG etc.)

And what most angel-sax people are not aware of: Everybody can open a company in the UK or US with a few mouse clicks. Try this in some other EU countries :-) (e.g. Germany).

And as a non UK/US resident, HMRC is not realy relevant to you.


The issue is with paying high taxes and getting services of a quality comparable to hu, bg and so on. Things are really that bad in the UK (albeit more friendly and relaxed). You can indeed create a company in a few clicks, but the system has so many small issues here and there that it becomes frustrating real fast.

Post brexit uk is seriously under skilled (the media calls it under staffed, but we all know whats really happening).


That's ridiculous, HMRC, despite its warts, is light years ahead other European countries where people usually want to move to (Italy, France, Spain, Portugal, Cyprus, Malta). Estonia (and I've heard good things about Poland - and I'm sure I'm missing something) are even better than the UK but I see very little reasons to move there.

I moved to Europe (purely for the weather and food, everything else is better in the UK: job prospects, crime, services) but keep my UK limited because it's so much nicer to work with.

With the right international structure and the ability to shift profits corporate tax is not that important.


"I moved to Europe (purely for the weather and food, everything else is better in the UK: job prospects, crime, services) but keep my UK limited because it's so much nicer to work with."

Where did you move from? Has the UK not only left the EU but also Europe? That would be a real tragedy.


Well, in HU and BG you pay around 10% company taxes.

HU has low income taxes too but for a big salary, social security, retirement payments etc. is also pretty high.

"but the system has so many small issues here"

You can always abandon a company. Especially as a foreigner and online? Forget about it.

I have no experience with the HMRC and I am sure every British person hopes for a better service. But please keep in mind that AFAIK life expectancy is still higher than in the US.


So that proves my initial point - taxes are lower in hu and bg. Shame they dont do online company registration.

Life expectancy likely _was_ higher in the uk than the us but given that the nhs is in shambles i’d be surprised if it isnt dropping.

To digress, the nhs is in such a bad state that guaranteed east europe will overtake the uk in terms of health care unless anything changes. The tax money is being wasted by the government either on inefficiencies or corruption. And now they cant blame europeans anymore.


Hungary has high taxes for the vast majority of tax payers, because it is not at all progressive.

Personal Income Tax is relatively low at 15%, but due to the fact it applies to every forint you earn, personal income tax is higher in Hungary until your salary reaches about 50 000 GBP (more than three times the median Hungarian salary), after which the UK is higher (noting that the median salary in the UK is already around twice what it is in Hungary).

Capital gains are taxed at the same rate of 15% with no allowance, while the UK has a 6 000 GBP allowance, and after that there's a system which has 10% for lower income tax payers, or 20-28% otherwise, meaning capital gains of less than around 25 000 GBP are taxed higher in Hungary than in the UK (assuming a higher rate tax payer, for lower rate tax payers, it's cheaper in the UK for a bit longer).

VAT is at 27% in Hungary compared to 20% in the UK.

Inheritance and gift taxes are 18% in the UK with no allowances while in the UK you pay 40% of everything above 325 000 GBP (meaning inheriting under around 600 000 GBP is more expensive in Hungary). Corporation tax is 9%, with additionally a possible 2% local tax.

In short, for the majority of tax payers, taxes are lower in the UK. The more money you make, the more favourable Hungary becomes.

Corporation tax though is indeed lower than the UK, at only 9%, compared to the UK's 19-25%.


I wrote extensively about the running costs of a Delaware C Corp for foreigners: https://jmstfv.com/stripe-atlas-taxes

Basically, expect around $800 to $1,000 in maintenance costs per year. LLCs may be cheaper, but open you up to tricky tax setups (you could be personally liable for U.S taxes).

> What is the recommendation for a company to manage an open source project?

I don't think you need that.

There is a non-trivial legal and accounting overhead that you will have to deal with to keep the corp running.


If you choose Delaware, make sure to look at the costs in year 2 and beyond.

I did a Delaware C Corp as a bootstrapper. The first year cost $1,000 in total incorporating cost and the second year was going to be several hundred just to stay in good standing.

This is compared to an LLC costing $100 one time in South Carolina.

If you’re bootstrapping, it’s worth thinking about the costs.


There are no maintenance costs or reporting for a South Carolina LLC?


In many states you just file a one time fee. Arizona for example, is a one time $50 fee with no maintenance or annual fee after. Pretty sure NM and Ohio are the same.


How is it in Taiwan?

I know nothing about it and the paperwork involved, but a quick search [1] suggests that the fee is NT$700, or about US$22, which does not sound expensive.

[1] https://bizportal.moea.gov.tw/showPageEngDetail?search=16


Thanks for asking the obvious, which I hadn't though of yet. I've only heard fairly negative things about incorporating in Taiwan, but I don't know the specifics, and am unclear how much is repeated bias. I wil ask people who know more to explain that to me.


I am an American who has worked with startups in Taiwan for 30 years. I am happy to talk.


I would suggest that a Wyoming or Nevada LLC is probably your best bet in terms of low fees, low taxes, and relatively decent laws.

Delaware is great if you want someone to eventually either invest in or buy your company, but the fees associated with Delaware corporations and LLCs are very high.


If choosing Wyoming or Nevada, what would be the next step?

Something like Clerky or find a registered agent, or use an attorney for everything?


We (Clerky) only support Delaware because that's where practically all startups (as opposed to regular small businesses) form. In case it's helpful, we've put together a pretty extensive explanation of why Delaware has come to be the standard for startups: https://handbooks.clerky.com/startup-incorporation/where

If you're not forming a startup and are considering Wyoming or Nevada, then I think whether you use an online service (like a registered agent) or an attorney could depend on whether you're just looking to have an entity for the sake of having one or if it's possible the paperwork will be important (e.g. if you have business partners). Unfortunately, there are no major online services similar to Clerky (in terms of legal quality) for Wyoming or Nevada, that I'm aware of, so if you fell in the latter category, I would recommend talking to an attorney. But if not, an online service could be fine.


It probably matters most what your aims are for forming the company. Since you are proposing it will have low to no revenue, what is driving you to (think about) incorporating?


The real reason to incorporate surely is the limit on liability and the ability to treat assets and actions of the project as distinct from your own.

Accidentally infringe a copyright it is probably 1000x harder to cause the owner of a company grief tan it would be to devistate the life of a sole-trader.


I don’t think a C-Corp will be much help here. Otherwise, you could start a streaming corp and accidentally publish Netflix shows. You’ll need an expensive lawyer to determine the limits of protection here.


Sounds like a job for BVI corp. no one can even find out who owns it.


It's not the cheapest, but it has the most predictable law. That matters a very little bit when you're starting (your local jurisdiction might still have weird rules for incorporating, like needing to run a newspaper ad), and it matters a great deal if you ever sue or are sued. The latter issue means that if you intend to take significant amounts of external funding, your investors will probably demand you (re)incorporate in Delaware.

My basic take has been that incorporation costs are a rounding error, and why would I do anything more exotic than Delaware?

But if you're doing an open source project that isn't going to take any money in and is unlikely to ever go out for funding, costs and admin headaches might dominate the decision.


Thank you for asking this question OP! The discussion has been really interesting. And good luck with the startup! Hope to see it on a Show HN soon.


If you're in Taiwan, then Taiwan.

Incorporating in Delaware means that you'll be filing a U.S. tax return every year, the cost of which would likely exceed your business maintenance costs (if any, depends on the state). If you need to raise money, you can always incorporate a Delaware subsidiary (or parent) then.

I know that Delaware is a popular choice in the startup community, but that is because it is what VCs want. Delaware is very rarely the proper choice for the founders, it is generally not the right choice for small businesses (meaning fewer than 50 employees or $50 million in annual revenue), and it's almost never the right choice a small business that have no physical presence in the U.S.


I live in the other US State which still holds Chancery Courts as independents (Tennessee) — an interesting relic of the past.

More to OP's question, I created a similar corporate entity for a similar low to no revenue business venture — and absolutely would not recommend doing so without very specific purpose.

As smart as you might be, the tax/codes/law/system are designed to need/require expert navigation of this intentionally-complex legal system we choose to allow.


These main reasons are the ones I start with when people ask why Delaware for a Startup, that will raise Investor money in future. There are lots of detailed explanation but these should get you started.

1. Delaware is business-owner friendly.

2. It’s favorable to buy shares as investors.

3. You’ll save a ton of money on taxes.


what is the point of having a company if it doesn't have any revenue?


Corporations (and LLCs) protect you legally from the mistakes caused by others.


Not if it’s a single owner LLC or corp. IANAL but you have to be anal about separating personal and business activities if there’s only one shareholder.


Single owner isn't really the problem per se. Rather it's the owner(s) being significantly involved in the operations of the company, such that they can still be held to be personally responsible for the actions in question or the LLC can be declared undercapitalized (since it's not just paying someone to do those jobs). So like much of the legal system such structures don't actually provide much protection for individuals, but rather well-moneyed conspiracies.


It protects you from the mistakes of others. The problem for the single owner is that they do a lot themselves, and for that, you need insurance.

But when it works, it works. Imagine you dropship a faulty part to someone, so that there's no negligence by the sole owner. You'd much rather have the lawsuit go:

Plaintiff vs. Your LLC & Vendor Co.

than

Plaintiff vs. You & Vendor Co.


While the limitation part is right, start-up porn may also be an issue.

My VC buddy calls all this (Business Cards etc.) start-up porn because in the end it is not important. He wants to start a open source project. Nobody is going to sue him in Taiwan as long he does no crazy things (e.g. open an auction site ibay ) or something.


That's a fair question. I felt like it was forcing myself to have some accountability and responsibility.


Before you start a Deleware C corp, discuss the idea with your lawyer. If you don't have a lawyer now, you will almost certainly wind up with one if you start a Delaware C corp because Delaware C corps have sophisticated filing requirements and non-trivial fines if you don't meet those requirements.

And honestly, a Delaware C corp would be "playing house." The hard work is finding customers/users not filling out forms and writing checks.

Good luck.


Probably better to go with an LLC. In many states they are low cost and have few requirements, but still provide limits on liability and provide a professional image. If the startup becomes successful enough to need a corporate structure, then you can hire the lawyer and go the more expensive route.


Finding customers is the best thing.

The only good reason for a Delaware C Corp is because an investor requires it…in other words, the only good reason is because someone else is willing to pay for it.

But yes, an LLC can be a reasonable option, but a sole proprietorship is the simplest thing that might work. And it requires no work beyond business records and tax reporting…and then only if you are making revenue.

Until then, it is a multiplication problem with one or more factors being zero.


I wouldn't want to find a customer without a liability veil in place. At least in my state, an LLC is maybe $150 to set up and $70 every ten years. The paperwork is really 1 notarized form plus your bylaws (templates are available) and a report every 10 years. That's a small price for liability protection. If you make it generic enough, you can reuse it for future business ideas too.


I wouldn't want to find a customer

An LLC won’t protect you when you work with customers you can’t trust.

An LLC won’t make finding good customers any easier either.

And it won’t save you any legal fees if you get sued or make collecting what you are due when someone doesn’t pay any more likely.

But sure an LLC is easier than finding customers and then you can set up bank accounts and design a website and avoid the hard problem with those too.


I looked into this a while back and came to the conclusion I maybe/probably didn't need to do it upfront but it was cheap enough that it was probably worth going ahead and doing. As it turns out, my timeframes for doing anything with the business slid out but a don't really regret having put the LLC un place.


YAGNI…without customers and forming an LLC can happen as contracts are being written…but if you think your first potential customer is likely to sue before there’s a contract, walk away and find a different first customer.

It seems like what Paul Graham called “playing house.” Forming an LLC feels like progress but it’s not.

http://www.paulgraham.com/before.html

What I mean is as I have been thinking about my opinion today I think my opinion comes from a deeper intuition developed over the years.

The standard arguments for forming an LLC are not based on better meeting the needs of actual or potential customers.

Even worse I think is that the standard argument is based on assumptions that the relationship is adversarial, arms length, and short term.

Good customer relations are way more valuable than limited liability because problems tend to be worked out before lawyers get involved.


It's not so much about the legal liability. But a lot of companies want to deal with other companies and you can deal with that by just making up a name, doing a DBA with your town or whatever for probably tens of dollars, or making an LLC for hundreds of dollars.

It probably doesn't really matter for small-time stuff. It may also be worth spending a small amount of money in advance to put some structure in place. I agree that involving lawyers and thousands of dollars in advance a lot of the time is probably not worth it in many/most cases.


spending a small amount of money in advance

If you have cash in hand, you can form an LLC if one is needed.

If an LLC is not needed, the cash in hand can be spent on something that is needed.


Don't do it. I actually did something similar and it was a bad idea, simply because the business had not made any money and had to be shut down eventually. It really was "playing house" like the other commenter said. Make money first, then incorporate.


Not sure how incorporating will help with those things. Adding a layer of bureaucracy will not magically create accountability.


limitation of liability


Its cheaper because when you hire lawyers they are more familiar and things have already been sorted out mostly. If you're not dealing with lots of $$$ then you don't need Delaware.


I've recently came across this website:

https://www.incfile.com/blog/cheapest-states-to-form-an-llc

Find it's informing.

Also to considering is the tax.

which is here:

https://taxfoundation.org/publications/state-business-tax-cl...


I know OP asked specifically about the US, but why incorporate in the US at all.

Is incorporating outside the US not an option at all and if so I'm curious to know why.


You'll need a Delaware C-Corp to receive funding. If funding isn't on the cards, a simple and cheap LLC is the best. Delaware C-Corp has a bunch of reporting requirements and a scary default tax treatment. It's not for the uninitiated.

As someone else noted, Taiwan-based company. If you must have a US entity, LLC is the best for a one-person company. If you do raise funding or become big, it's trivial to convert to a C-Corp.


Please provide references for the term "scary" and "not for the uninitiated."


https://www.cooleygo.com/so-you-owe-thousands-in-delaware-fr...


Thanks, realizing that I incorrectly used the term incorporate as I did mean just LLC.


There's some great advice in other threads. LLC in a friendly no-reporting, no-franchise-tax state is probably the best bet.


Why do you need a company for such an initiative? Why not just make it?

Also setting up a company in another country than the one you live in, compliantly, introduces a world of bureaucratic hurt. If you have a good reason to set up a company, far easier to set up a local one.

Not a lawyer/accountant.


almost nobody needs Delaware

the reality is that there are 49 other states, half a dozen territories, and hundreds of semi-autonomous reservations a handful of which are also known to have their incorporation statutes

they haven't all stayed still over the past 30 years while Delaware’s marketing engine keeps going, they compete directly

anybody with reading comprehension can find one more favorable and cheaper than Delaware

some even have “chancery courts” just like Delaware

there are even currently obscure entity types that Delaware doesn't have, which may be more favorable. there is more than a C-Corp and an LLC out there

the same is true all around the world, all you need is incorporation cheaply and quickly, and access to domestic and international banking in the company’s name cheaply and quickly, which isn’t necessarily tied to the country your business is in.

there are infinite permutations. it is true that there are only a couple jurisdictions that excel on the cheaply and quickly part.

your real question is a lot more loaded, as you dont know what entity type you want, and dont know what state you want or why

I personally dont use Delaware, most of the time. If I am selling shares to VCs I will create a Delaware C-Corp. but even then I’ll start with an LLC somewhere else and just reincorporate when the VC is serious

I personally find Wyoming to be better faster and cheaper than Delaware, for an LLC. it depends on which registered agent you use though.


> I personally find Wyoming to be better faster and cheaper than (...)

I hear that some states (or all?) require you to have someone physically in the state (and naturally some companies offer this as a service, and charge). Is that right? or are there some states without this requirement?


this concept is called a registered agent, they service all states. the largest registered agents in the US service every single state in the union.

it is not complicated or presumptive of anything like the another reply suggested.

every state has many service providers that compete with the national ones.


So are you saying that all states require a physical address? Yes, I understand that some companies offer this as a service, but that in itself doesn't mean there's no state where this isn't required.


Most do, but this often means a physical address. In Delaware there are companies that will provide you a physical address and forward any mail you get to that address to wherever you want to get mail. While this can be done in other states, this is much less common and so if you look for someone you may discover everyone refuses because they assume you are trying to commit fraud (it isn't fraud, but if you don't worry about that you need to readjust your moral)


You are not wrong, but not necessarily right either. Delaware is used so commonly for this that they have a lot more details worked out where you may need a court trial for something weird. If anything goes wrong a lot more lawyers will know how Delaware laws work. There will be a lot more services that can do little things for you. You will find accountants who know Delaware rules (if you live in a state you will find accountants who know that state's rules, but good luck finding one who knows the rules for a different state - unless that state is Delaware).

Is the above worth the costs? I cannot answer that. There are many it depends. however everyone should be aware that Delaware provides a lot of value for the money, and a lot of that is hidden second order things. Those things may or may not matter.


As my post says, some other jurisdictions have chancery courts just like Delaware, which means getting quick access to a business only court, and quick generation of case law.

But I think you - and most others that repeat that cookie cutter advice - are still missing the opportunity. Being able to get a competent court trial for something weird is absolutely valuable, but if you don't like the case law in Delaware you can literally argue for the opposite result in another state. Calculate the risk (and be good at math)

To me, that's a really fine reason to not use Delaware, for a fresh slate. You can shape the world, or craft a slice of it that suits you.

I agree with you that there are less service providers in other states. And they don't get as much action and have less reason to be competent too. My primary point still stands, most people don't need Delaware, most people never need those other service providers, never need a state court. If they ever get big and complex they're still most likely going to be in federal jurisdiction anyway - or have the option of moving a case to federal jurisdiction. Random entrepreneurs and placeholder company creators need a registered agent and that's it.


There are so many registered agents to choose from. Are there any commonly recommended registered agents?

Relatedly, can anyone say if it's better to file with clerky instead of a registered agent?


I'm a co-founder of Clerky — I think it really depends on your needs. If you're starting a true startup (as in you are going to optimize for growth, might raise money, etc.), then you'll be better off either using Clerky or working with a good startup attorney, or both. The reason for this is because there is a lot more you'll need to do beyond just incorporation, and we have products for that. Incorporation just causes the corporation to exist, nothing more. No one even owns any shares right after incorporation. The odds of someone getting all the paperwork right on their own if they're not a startup attorney are basically 0%.

Even for incorporation itself, if you do it on your own or work with a registered agent, it's likely that you'll end up needing to at least amend your certificate of incorporation later. Most of the self-help / registered agent resources out there are for regular small businesses, not startups, so the guidance is not really what startups need. Some people like referring to every new business as a startup, I think because it sounds sexier to be working on a startup than a regular small business.

However, if you're starting a regular small business — i.e. not a startup — then I would say using Clerky is not a good idea. We're really purpose-built for startups and don't attempt or purport to serve regular small businesses. Whether you should use a registered agent alone is another question. At a minimum, if you have business partners you're starting the business with, I would say you probably should talk to a business attorney rather than trying to go on your own. On the other hand, if you just need an entity just for the sake of having an entity, and don't really care about whether the paperwork is done correctly or not, then just working with a registered agent directly could suffice.


This is excellent.

Sometimes founders and investors have more real life horror stories than attorneys because we pay the bills.


I incorporated mine in Colorado, mainly because I'm originally from there. It's worked out for me, been in Cali, as a CO Corp for 8 years now, happy to answer any questions


If you're a European, is it still a good thing to incorporate in Delaware? How do you file your taxes in Europe? Does it raise question from local tax authorities?


B A big new issue is you now need a separate Delaware address from the address of your registered agent. This now pushes the annual costs up some.


There are many Open Source Software foundations that specialize in stewarding open source intellectual property and also open governance. Linux Foundation, Apache Software Foundation, [...]

Very few software licenses accept liability, including open source software licenses. Is that conscionable? Service Level Agreements (99% uptime and ZenDesk email-in customer support or better etc) cost money.

E.g. LegalZoom (no affiliation) has affiliate attorneys in many states, including Delaware.

It may or may not be common for open source software projects to register their trademark and/or DBA (Doing Business As) in each state: of operation, of labor law applicability (especially if there are remote workers).

GitHub (now Microsoft owned) supports FUNDING.yml files to display sponsor buttons for projects: https://docs.github.com/en/repositories/managing-your-reposi...

"Sponsors is expanding" (2023-10) https://github.blog/2023-10-03-sponsors-is-expanding/ :

> GitHub Sponsors now supports 103 regions!

E.g. WebMonetization.org supports the W3C Interledger spec (ILP Protocol), which can connect traditional and digital asset ledgers. GitHub supports a number of ~payments/donations providers but not yet any w/ Interledger FWICS?

> Did you know? We recently launched the ability for self-serve enterprise customers to allow member organizations to easily create sponsorships. Today, more than nine in 10 companies use open source software in at least some capacity. Knowing this, we enhanced our invoice process for organizations, making it easier for organizations to sign up and request invoicing as a payment method for sponsorships.

> Additionally, we are making it easier for self-serve enterprise customers to grant their member organization permission to create sponsorships

From the GH Sponsors FAQ re a Matching Fund https://github.blog/2019-06-12-faq-with-the-github-sponsors-... :

> Can’t people just steal money from the matching fund?: We have a rigorous vetting process for the sponsored developers who receive the match. If you happened to see the application form at github.com/sponsors, you’ll notice we ask a lot of questions that support this process. We’re also introducing more measures—including an extensive identity verification and antifraud program in partnership with Stripe—as we grow the program this summer.


You should check out Clerky - great tool.


Take a look at Stripe Atlas (I have no affiliation).


Do not incorporate. Simple.

Once you have more than one client willing to spend $x,xxx for your services, you’ll know where to best incorporate and the best structure for you.


Wyoming. You want to be in Wyoming.


You could consider France. We have a "micro-entrepreneur" status. But I (Basile Starynkevitch) am not a lawyer, and not your lawyer, but a French open source software developer and living near Paris.

My pet open source project is the RefPerSys open source inference engine (for future expert systems). See amateur website http://refpersys.org/ and serious C++ code (GPLv3+ for Linux, still buggy in mid-november 2023) on https://github.com/RefPerSys/RefPerSys/

I am seeking applications and contributors for it.

If interested by RefPerSys, contact me (Basile Starynkevitch, in France near Paris) by email to basile@starynkevitch.net or by SMS or whatsapp to +33 6 8501 2359




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